What do you think?
Rate this book
Practical Speculation
The follow-up to Victor Niederhoffer's critically and commercially acclaimed book The Education of a Speculator has finally arrived. Practical Speculation continues the story of a true market legend who ran a hugely successful futures trading firm that had annual returns of over thirty percent until unforeseen losses forced him to close operations. Like a phoenix rising from the ashes, Niederhoffer returned to the world of trading stocks, futures, and options, with a new colleague and a new approach and found success. Order your copy of this compelling story of risk and survival today.
400 pages, Hardcover
First published February 21, 2003
27 people are currently reading
291 people want to read
Ratings & Reviews
Friends & Following
Create a free account to discover what your friends think of this book!
Community Reviews
Displaying 1 - 9 of 9 reviews
February 5, 2013
In a typical Niederhoffer fashion, this book compares share trading with other activities in life; board games, fishing, sports etc.
In particular, I like:
(1) earning propaganda
(2) the principle of ever changing cycle
(3) explanation of scatter diagram/ correlations
(4) list of recommended books
(5) the various fallacies (fallacy of composition, fallacy of aggregation and ecological fallacy)
(6) some items to watch out for when investing in equity (inventory, stock buyback, dividend payout, taxes).
(7) real estate cycle
(8) bargaining
Would recommend this book as a sequel to The Education of A Speculator by the same author Victor Niederhoffer.
In particular, I like:
(1) earning propaganda
(2) the principle of ever changing cycle
(3) explanation of scatter diagram/ correlations
(4) list of recommended books
(5) the various fallacies (fallacy of composition, fallacy of aggregation and ecological fallacy)
(6) some items to watch out for when investing in equity (inventory, stock buyback, dividend payout, taxes).
(7) real estate cycle
(8) bargaining
Would recommend this book as a sequel to The Education of A Speculator by the same author Victor Niederhoffer.
August 23, 2008
This book has one of the best bibliographies of any book I have ever read. I have already purchased fifteen of the books cited in this piece of literature.
November 14, 2023
I started off by really liking this book. The chapters about (the nonsense of) Technical Analysis, the perils of being unable to climb down from your ideas in "the cult of the Bear", the detailed critique of value investing demigod "Benjamin Graham", the lampooning of the financial press in "Computer writes stock market report" (which turned out to be very prescient), and the discussions on Spurious Correlations and what long-term returns say about future return were all very much worth the read - and shall be re-read by me at some point in the future.
Unfortunately, there is also a lot of nonsense in the book. Victor Niederhoffer and his co-author Laurel Kenner have written too many columns over the years and they simply cannot stop themselves from adding a lot of that material in the book, doing it absolutely no favors. Basically everything, aside from the Introduction and the chapters mentioned above, had best be left unread.
There are chapters upon chapters filled with (borderline) nonsense and homey stories. There's the one where the authors create false equivalencies by using borrowed scientific terminology out of context to discuss market price movements (conservation of energy! entropy!. There's an unironic chapter about a completely bonkers "connection" between baseball home-run averages and the state of the US Stock market - which is the very kind of market-mysticism that they so successfully argue against in their chapters on technical analysis and false correlations!. And there's an entire chapter ruminating on the lessons for investing that can be observed from playing a lot of squash. playing against whom I ask? The Invisible Hand of the market?! And endless chatty chapters that just string together somewhat related material without much in the way of a "pointe" - padding much?
What really got me riled up was an entire chapter devoted to shilling (for lack of a better word) for the stock picking advisory company Value Line, belaboring Value Line's amazing (cough cough) record of recommending stock selections that theoretically outperform the passive market index by circa 1.5%. For whatever reason, the authors see fit to litter their introduction and discussion of Value Line with a lot of references to the Standard Model of the Elements, which has only a very tenuous relation with the stock classification work that Value Line does - for one, the elements in the periodic table do not move from category to category as time moves on.
Value Line produces a 'timeliness ranking' which (quote) "The record of the timeliness rankings is stellar. [...] The average return of 4.3 percent a quarter for the Group 1 stocks" (p. 238).
Seems okay, but then the critics point out that (quote) "The most obvious problem is that they do not work in many quarters. Timeliness Group 1 makes money in about two-thirds of the quarters. The actual return from following the Group 1 timeliness rankings in the four quarters ended September 30, 2001, would have been −30%, and following the Group 1 technical rankings would have led to a loss of 40%. Such results can try users’ souls." (p. 244). Indeed!
It gets worse: an even more comprehensive nixing of the value (sic!) of Value Line recommendations is that they themselves cannot seem to make any money with it, viz. (quote) "A much more disturbing problem is the performance of the Value Line mutual fund. From 1987 through 2001, the fund’s average quarterly performance was 0.96 percent, versus 4.6 percent for the Value Line timeliness rankings over 1983–2001. 'We’ll always lag the Group 1’s,' said Alan Hoffman, the Value Line mutual fund’s manager, in an interview. 'The Group 1 is a theoretical number that ignores transaction costs and dividends.' Moreover, he noted, the Value Line fund’s assets range between $300 million and $350 million. Many of the Group 1 stocks trade only a couple of thousand shares a day. 'You could never buy enough of the 1’s to actually make a portfolio of them.'" (p. 229-230). Ho-hum.
A 1 percent per quarter return represents a circa 10% underperformance vs. the passive index per annum. Amazingly, to this day the investors have not all run away from Value Line's funds. They are still there, bravely underperforming the index year on year and charging (enormous) fees for their active fund management. Indeed, as at November 2023, the Value Line Asset Allocation Fund (VLAAX) reported an average annual return of 7.22% over the last 10 years, while the S&P500 index fund in that same period returned 11.18% per annum. The picture gets worse when you consider that the yearly fees for VLAAX are 1.04% (gross) and those for a typical S&P500 index fund like Vaguard's VOO are 0.03%. So VOO beat VLAAX by 5% returns per annum each year, over the last decade. If we assume continuous reinvestment of the annual returns, a 10-year investment in VOO would have returned 63% more than the same in VLAAX. Yet the authors chose to talk up this dumpster fire in their book.
I respect that the authors did not omit the issues with Value Line, but why did they opt to praise them so lavishly - instead of taking their sledgehammers out to them? Are these buddies from the golf course? This whole chapter left me with a bad taste in my mouth.
And then some odd things too, like the habit of quoting from and mis-characterizing or possibly simply mis-understanding the work of scientists, for example: (quote) "Einstein’s grasp of geometry and certain invariances of right-angle triangles led to his discovery of the theory of relativity." (p. 280) or also: (quote) "In another experiment, Charbel Tannous and Alain Fessant of the Universite de Bretagne Occidentale in Brest, Belgium, used combustion models from high-energy physics to predict future values of stocks." (p. 282) Combustion in High Energy Physics?! and Bretagne is in France, not Belgium.. Please sir, I am a theoretical physicist by training, don't offend me so!
Finally there was this admission by Victor Niederhoffer that made my jaw drop in disbelief: (quote) "Vic has been recording hourly prices on 15 to 20 markets on a real-time basis by hand for the past 40 years. One of his record books, from 1965, appeared in a Japanese television special on him. In Japan, defeated ronins make pilgrimages to Mt. Fuji for guidance and sustenance; in this case, he was shown seeking guidance from his ancient book of hourly price records." (p. 342) HE RECORDED FORTY YEARS OF HOURLY PRICES on 15 TO 20 MARKETS BY HAND?! BY HAND?!?! What kind of maniac does that? How is that even possible? Who has time for that? Who is this guy??
For all their spirited rebuttal of Technical Analysis (and similar matters) and the loudly demonstrative espousal of "the scientific method" in their stock analysis, on balance I found the authors included way too much nonsense and, frankly speaking, mumbo-jumbo in this book to be taken seriously. The advertorial for Value Line was especially irksome. The book was a largely entertaining read, but 'entertaining' is not what I look for in a non-fiction book about speculation. Two stars.
Unfortunately, there is also a lot of nonsense in the book. Victor Niederhoffer and his co-author Laurel Kenner have written too many columns over the years and they simply cannot stop themselves from adding a lot of that material in the book, doing it absolutely no favors. Basically everything, aside from the Introduction and the chapters mentioned above, had best be left unread.
There are chapters upon chapters filled with (borderline) nonsense and homey stories. There's the one where the authors create false equivalencies by using borrowed scientific terminology out of context to discuss market price movements (conservation of energy! entropy!. There's an unironic chapter about a completely bonkers "connection" between baseball home-run averages and the state of the US Stock market - which is the very kind of market-mysticism that they so successfully argue against in their chapters on technical analysis and false correlations!. And there's an entire chapter ruminating on the lessons for investing that can be observed from playing a lot of squash. playing against whom I ask? The Invisible Hand of the market?! And endless chatty chapters that just string together somewhat related material without much in the way of a "pointe" - padding much?
What really got me riled up was an entire chapter devoted to shilling (for lack of a better word) for the stock picking advisory company Value Line, belaboring Value Line's amazing (cough cough) record of recommending stock selections that theoretically outperform the passive market index by circa 1.5%. For whatever reason, the authors see fit to litter their introduction and discussion of Value Line with a lot of references to the Standard Model of the Elements, which has only a very tenuous relation with the stock classification work that Value Line does - for one, the elements in the periodic table do not move from category to category as time moves on.
Value Line produces a 'timeliness ranking' which (quote) "The record of the timeliness rankings is stellar. [...] The average return of 4.3 percent a quarter for the Group 1 stocks" (p. 238).
Seems okay, but then the critics point out that (quote) "The most obvious problem is that they do not work in many quarters. Timeliness Group 1 makes money in about two-thirds of the quarters. The actual return from following the Group 1 timeliness rankings in the four quarters ended September 30, 2001, would have been −30%, and following the Group 1 technical rankings would have led to a loss of 40%. Such results can try users’ souls." (p. 244). Indeed!
It gets worse: an even more comprehensive nixing of the value (sic!) of Value Line recommendations is that they themselves cannot seem to make any money with it, viz. (quote) "A much more disturbing problem is the performance of the Value Line mutual fund. From 1987 through 2001, the fund’s average quarterly performance was 0.96 percent, versus 4.6 percent for the Value Line timeliness rankings over 1983–2001. 'We’ll always lag the Group 1’s,' said Alan Hoffman, the Value Line mutual fund’s manager, in an interview. 'The Group 1 is a theoretical number that ignores transaction costs and dividends.' Moreover, he noted, the Value Line fund’s assets range between $300 million and $350 million. Many of the Group 1 stocks trade only a couple of thousand shares a day. 'You could never buy enough of the 1’s to actually make a portfolio of them.'" (p. 229-230). Ho-hum.
A 1 percent per quarter return represents a circa 10% underperformance vs. the passive index per annum. Amazingly, to this day the investors have not all run away from Value Line's funds. They are still there, bravely underperforming the index year on year and charging (enormous) fees for their active fund management. Indeed, as at November 2023, the Value Line Asset Allocation Fund (VLAAX) reported an average annual return of 7.22% over the last 10 years, while the S&P500 index fund in that same period returned 11.18% per annum. The picture gets worse when you consider that the yearly fees for VLAAX are 1.04% (gross) and those for a typical S&P500 index fund like Vaguard's VOO are 0.03%. So VOO beat VLAAX by 5% returns per annum each year, over the last decade. If we assume continuous reinvestment of the annual returns, a 10-year investment in VOO would have returned 63% more than the same in VLAAX. Yet the authors chose to talk up this dumpster fire in their book.
I respect that the authors did not omit the issues with Value Line, but why did they opt to praise them so lavishly - instead of taking their sledgehammers out to them? Are these buddies from the golf course? This whole chapter left me with a bad taste in my mouth.
And then some odd things too, like the habit of quoting from and mis-characterizing or possibly simply mis-understanding the work of scientists, for example: (quote) "Einstein’s grasp of geometry and certain invariances of right-angle triangles led to his discovery of the theory of relativity." (p. 280) or also: (quote) "In another experiment, Charbel Tannous and Alain Fessant of the Universite de Bretagne Occidentale in Brest, Belgium, used combustion models from high-energy physics to predict future values of stocks." (p. 282) Combustion in High Energy Physics?! and Bretagne is in France, not Belgium.. Please sir, I am a theoretical physicist by training, don't offend me so!
Finally there was this admission by Victor Niederhoffer that made my jaw drop in disbelief: (quote) "Vic has been recording hourly prices on 15 to 20 markets on a real-time basis by hand for the past 40 years. One of his record books, from 1965, appeared in a Japanese television special on him. In Japan, defeated ronins make pilgrimages to Mt. Fuji for guidance and sustenance; in this case, he was shown seeking guidance from his ancient book of hourly price records." (p. 342) HE RECORDED FORTY YEARS OF HOURLY PRICES on 15 TO 20 MARKETS BY HAND?! BY HAND?!?! What kind of maniac does that? How is that even possible? Who has time for that? Who is this guy??
For all their spirited rebuttal of Technical Analysis (and similar matters) and the loudly demonstrative espousal of "the scientific method" in their stock analysis, on balance I found the authors included way too much nonsense and, frankly speaking, mumbo-jumbo in this book to be taken seriously. The advertorial for Value Line was especially irksome. The book was a largely entertaining read, but 'entertaining' is not what I look for in a non-fiction book about speculation. Two stars.
February 10, 2016
The over-complexity of Victors's trading methods is the main reason of his failure.
August 5, 2024
I really appreciated his insights into quantitative investing. Most books on the subject tend to be dry and overly complicated yet ineffective. I also enjoyed his parallels to other fields like art, sports, and betting.
My only complaint is that his critique of value investing was fairly weak, especially considering the success of many value investors.
Overall, it’s a great book that I would recommend to anyone interested in finance.
My only complaint is that his critique of value investing was fairly weak, especially considering the success of many value investors.
Overall, it’s a great book that I would recommend to anyone interested in finance.
March 13, 2022
Entertaining and informative, Vic cleans up with some dearly beheld prejudices and delivers a conclusion which doesn't quite sound astonishing or new, but too few pracitioners are capable of sticking with. No spoiler alert from me - read for yourselves!
October 27, 2009
The author is one of those ridiculous superachievers (PhD in Econ from Chicago GSB, billionaire hedge fund master, 5-times national champion in squash and one-time world champion) that you almost can't take seriously. He also packs a few too many allusions into this book. Despite that, Practical Speculation remains immensely readable and is full of information from a variety of fields. I will read it again.
Want to read
January 22, 2012-available in SG NLB 332.632 (Bishan)
February 13, 2018
Contrarian.
Displaying 1 - 9 of 9 reviews